Ruble Falls 155 Points to Record Low

The ruble dove 155 points to a record low of 2,631 per U.S. dollar Wednesday amid speculation that the Central Bank was losing control of the Russian currency's fall.

Long lines formed outside bank and currency exchange offices throughout Moscow as the ruble took its steepest one-day fall -- 6.3 percent -- since a government crisis sent the currency reeling by 6.8 percent in one day in January.

The ruble has tumbled 300 points in the past week.

"The Central Bank is fighting with its back against the wall. It has nowhere to escape now," said a Western economist. "Today's accident points to the weakness of the economy. It is the result of a less rigid monetary policy in recent months."

Former acting deputy prime minister Yegor Gaidar told a press conference Wednesday that the ruble's fall was a direct result of a drastic increase in government spending since April.

Gaidar, now director of the Institute for Economic Problems of the Transitional Period, said twice as much money entered the economy in the second quarter of 1994 as in the first. Between April and August, he said, the money supply grew by 15 percent a month.

He said it would be unwise for the Central Bank to attempt to prop up the ruble against this flood of money. "You could waste all your reserves trying to do so," he said.

Western economists said a prolonged ruble fall could hurt a steady inflow of "hot money" from abroad this year as investors made use of positive real interest rates. This also helped to boost Russian investor confidence in ruble instruments.

Officials said the Central Bank has spent more than $2 billion in reserves over the past two months to slow the ruble's slide. But at the end of August, the bank tried a new tactic, letting the ruble fall sharply to release market pressure. The move stabilized the ruble for a few sessions, but sellers later returned.

Deputy Central Bank Chairman Vyacheslav Solovov brushed aside the latest fall, saying the ruble was likely to stabilize in the short term, as transactions with the dollar become relatively less attractive.

Dealers expressed confidence that the Central Bank was in control.

"It is profitable for the Central Bank to sell hard currency at a higher rate, and get more rubles to pay their debts," said a dealer with a major Russian bank. Government officials have said repeatedly in the past week that Russia would use Central Bank currency reserves to pay delayed salaries worth 1.9 trillion rubles ($720 million).

"Twice a year the Central Bank opens the sluice and adjusts the rate to its own needs. The ruble reaches another level and becomes relatively stable there. The same happened in January," said a dealer with a Western financial company. In the entire month of January, the ruble fell nearly 20 percent.

"The Central Bank will not leave the ruble unattended," a Western bank treasurer said. "There will be no panic, but they will allow the ruble to drop to a target they have in mind."